A place for a tired old woman to try to figure things out so that the world makes a bit of sense.

Thursday, July 16, 2009

Egads! WaPo Got It Right

Consumers pay $3.5 billion too much annually for their prescription drugs, according to this rather surprising editorial in the Washington Post. Surprising? Let's just say I felt like I had been smacked upside the head with a mackerel, but in a good way. Fred Hiatt and his editorial board got this one right, in fact, they nailed it.

The 1984 Hatch-Waxman Act was supposed to help consumers by offering a 180-day exclusive marketing period to generic companies that could develop their own "bio-equivalent" versions of brand-name drugs without infringing on the brand-name drugs' patents. Allowing brand-name patent holders to sue if they thought the generic equivalents came too close to the patented drug's composition, the act was designed to promote the development of cheaper alternatives and encourage challenges to weak patents. But the result has been an increasing number of out-of-court settlements in which brand-name drug companies simply pay generic competitors to stay out of the market. A measure intended to make cheaper, generic alternatives available sooner has had the paradoxical effect of delaying competition. [Emphasis added]

In many other industries, such conduct would be viewed as the kind of collusion that would (and should) require investigation under anti-trust laws. Somehow, however, the pharmaceutical companies (both large and small) have managed to avoid such reviews through the manipulation of well-intended but, as it turns out, deficient legislation. The answer, of course, is to fix the legislation. In this case, to require a showing that the "settlements" are legitimate and not intended to subvert honest competition.

As Congress embarks on major health-care reform, it has a chance to fix the system. Banning all "pay-for-delay" settlements except where they can be proven to be pro-competitive would be a good start. True, some pay-for-delay settlements inadvertently benefit consumers by allowing generic products to enter markets sooner than they would have after litigation. But that is no excuse for failing to fix a system with fundamentally flawed incentives. The only difference between one company paying another not to produce a competing product and one company paying another not to produce a competing product yet is that the second is still, paradoxically, legal. This must change.